Walmart gears up to counter Amazon

Walmart recently reported financial results for the fourth quarter and full year. The world’s largest retailer turned in a mixed performance, with sales gains coming at the expense of lower profits. On the plus side of the ledger, companywide revenue for fiscal 2017 rose 0.8% to $485.9 billion, and operating cash flow hit a record $31.5 billion. Operating income, meanwhile, dipped 5.6% to $22.8 billion. (Excluding the impact of currency fluctuations, sales were up 3.1% and operating earnings fell 2.9%.)

One bright spot was continued momentum exhibited by Walmart U.S. In the fourth quarter, the company’s core business unit saw a 1.4% increase in customer traffic and generated a 1.8% same-store sales gain, the 10th straight quarter of improved results by that measure. Walmart’s Neighborhood Market format performed even better, turning in a comparable-store sales increase of 5.3%. The improvements reflect stepped-up investment by the company in its stores, including lower prices and higher wages for associates.

Perhaps the biggest news contained in the earnings report was the ongoing emergence of Walmart as a force in e-commerce. Sales in the segment, including Jet.com and online grocery, surged 29% in the fourth quarter, eclipsing the 22% increase generated by e-commerce leader Amazon.

“We’re moving with speed to become more of a digital enterprise and better serve our customers,” says Doug McMillon, the dynamic young executive who has greatly accelerated Walmart’s push into the online realm since becoming CEO three years ago. “We have more work to do, but I’m pleased with our progress.”

McMillon’s decision in 2016 to buy Jet.com for $3.3 billion in cash and stock signaled his determination to make Walmart a more potent force in online retailing. The appointment of Jet.com founder Marc Lore to head Walmart eCommerce U.S., together with the rapid progress the company subsequently made in that sector, portend a titanic battle between Walmart and Amazon for dominance in online sales and the broader retail marketplace.

Make no mistake: Amazon is the proven master of e-commerce, and it is headed by an innovator who can legitimately be compared to Walmart founder Sam Walton for his impact on the retailing business. As a result of Jeff Bezos’ refusal to let Amazon stand pat, the company continues to test and implement new concepts, including a small but growing number of stores in the brick-and-mortar realm.

Walmart is the undisputed king of traditional retailing, with annual global sales more than four times those of its nearest rival, Costco, and more than five times those of Amazon. If deployed wisely, Walmart clearly has the resources necessary to augment its e-commerce capabilities and compete with Amazon on its own terms.

More important, McMillon and his colleagues recognize that retailing is changing at an unprecedented rate. The strategy that fueled Walmart’s rise in the late 20th century is, in some respects, out of sync with the needs of today’s consumers, who expect a greater degree of convenience and personalization than ever before from the companies with whom they do business. Unlike dominant retailers of the past — A&P, Kmart and Sears come readily to mind — Walmart is adapting to the new realities. A reoriented and reenergized Walmart, one that seamlessly combines the strengths of its brick-and-mortar stores with new digital capabilities, should be able to maintain its position in the forefront of mass market retailing.